Judge Daniel M. Crowley, Case Number: 22STCV30299, Date: 2023-08-07 Tentative Ruling

Defendant Hightechlending, Inc.’s demurrer to Plaintiffs Jonathan S. Powers, individually and as attorney-in-fact for Phyllis A. Powers and Jonathan S. Powers Roth IRA’s and Henry Kreuter’s third amended complaint is sustained with 20 days leave to amend as to the 2nd and 4th causes of action.

Defendant Hightechlending, Inc.’s (“Hightechlending”) (“Moving Defendant”) demurs to the to the third amended complaint (“TAC”) of Plaintiffs Jonathan S. Powers (“Jon”), individually and as attorney-in-fact for Phyllis A. Powers (“Phyllis”) and Jonathan S. Powers Roth IRA, and Henry Kreuter (“Kreuter”) (collectively, “Plaintiffs”). (Notice of Demurrer, pg. 2; C.C.P. §§430.10 et seq.)

Before filing a demurrer, the demurring party must meet and confer in person, by telephone, or by video conference with the party who filed the pleading to attempt to reach an agreement that would resolve the objections to the pleading and obviate the need for filing the demurrer. (C.C.P. §430.41(a).)

(3) The demurring party shall file and serve with the demurrer a declaration stating either of the following: (A) The means by which the demurring party met and conferred with the party who filed the pleading subject to demurrer, and that the parties did not reach an agreement resolving the objections raised in the demurrer. (B) That the party who filed the pleading subject to demurrer failed to respond to the meet and confer request of the demurring party or otherwise failed to meet and confer in good faith. (C.C.P. §430.41(a)(3).)

Hightechlending’s counsel failed to file with the demurrer a meet and confer declaration in violation of C.C.P. §430.41(a)(3). However, a determination by the court that the meet and confer process was insufficient shall not be grounds to overrule or sustain a demurrer. (C.C.P. §430.41(a)(4).) Therefore, the Court will consider Hightechlending’s demurrer.

Plaintiffs filed their complaint on September 15, 2022. Plaintiffs filed their first amended complaint (“FAC”) on October 6, 2022. Plaintiffs filed their second amended complaint (“SAC”) on September 8, 2023. Plaintiffs filed the operative TAC on February 21, 2024, against Hightechlending and Non-Moving Defendants Equity Wave Lending, Inc. (“EWL”), Jack J. Suddarth (“Suddarth”), Brian Hedger (“Hedger”), Next Day Appraisals, LLC (“Next Day”), Brett A. Varon (“Varon”), AAMC Orange County, Inc. (“AAMC”), Sandra K. Gramlich (“Gramlich”), Gregory Moore (“Greg”), and Edith A. Moore (“Edith”) (collectively, “Defendants”), alleging five causes of action: (1) breach of fiduciary duty [against EWL and Suddarth]; (2) negligence [against all Defendants]; (3) constructive fraud [against EWL and Suddarth]; (4) misrepresentation [against all Defendants]; and (5) fraudulent misrepresentation and concealment [against Hedger].

Hightechlending filed the instant demurrer on March 4, 2024. Plaintiffs filed their opposition on March 25, 2024. Hightechlending filed its reply on March 27, 2024.

Plaintiffs allege in March 2018, Jon and Phyllis were presented with an investment opportunity and loan servicing arrangement by their broker and agent Suddarth and EWL. (See TAC ¶17.) Plaintiffs allege the real property in this dispute are two vacant lots located at 3420 Dorothy Road, City of Calabasas, County of Los Angeles, California (“Calabasas Property”) with Assessor’s Parcel Numbers 2080-015-033 and 2080-015-034 and a legal description of: Lots 61 and 62 of Tract. No. 7094, as per map recorded in book 92, pages 64 and 65 of maps, in the office of the county recorder of Los Angeles County. (FAC ¶3.)

Plaintiffs allege Greg, Edith, and Hightechlending were the agents for their principal, Hedger. (TAC ¶17.) Plaintiffs allege Hedger, by and through his agents Greg, Edith and Hightechlending falsely misrepresented Hedger’s status as a creditworthy borrower (with sufficient security in the form of real property) to Plaintiffs, by and through its agents EWL and Suddarth. (TAC ¶17.)

Plaintiffs allege the investment opportunity presented by Suddarth and EWL to Jon and Phyllis provided that Jon and Phyllis would provide money for a secured loan to Hedger, and act as servicer of the loan secured by the Calabasas Property. (TAC ¶19.) Plaintiffs allege in reliance on the representations made by EWL, Suddarth, Greg, Edith, Hightechlending, and Hedger, Jon and Phyllis invested $168,000 for the lending arrangement. (TAC ¶19.) Plaintiffs allege Greg, Edith, and Hightechlending, agents for Hedger, falsely misrepresented Hedger’s income and value of the real property security to Plaintiffs by and through their agents. (TAC ¶19.) Plaintiffs allege they reasonably relied on the false misrepresentations by EWL, Suddarth, Greg, Edith, Hightechlending, and Hedger. (TAC ¶19.)

Plaintiffs allege on January 22, 2019, EWL, by and through its authorized agent Suzie Peach, contacted Plaintiffs, its principals, seeking additional funding to refinance Hedger’s secured loan, as requested by Hedger’s agents, Edith, Greg, and Hightechlending. (TAC ¶20.) Plaintiffs allege Jon rejected the refinance demand. (TAC ¶20.)

Plaintiffs allege on March 8, 2019, EWL, by and through its authorized agents Suzie Peach and Debbi Suddarth (Senior Vice President of EWL), again contacted Plaintiffs regarding Hedger and his agents’ refinance demand. (TAC ¶21.) Plaintiffs allege EWL made false representations regarding the appraised value of the secured real property, that Hedger was seeking to develop the Calabasas Property, and that Hedger possessed a construction timeline. (TAC ¶21.) Plaintiffs allege EWL and its agents failed to advise Plaintiffs that Hedger was at risk for default due to his missed payments on the initial loan and that the refinanced loan opportunity presented a greater risk than the initial loan due to the increased amount of the loan and the fact that Hedger had missed payments. (TAC ¶21.) Plaintiffs allege EWL, by and through its agents, knew that Plaintiffs had rejected the initial refinance demand and that additional false misrepresentations, deception, and omissions were necessary to convince Plaintiffs to agree to the refinance demand. (TAC ¶21.) Plaintiffs allege a prudent fiduciary agent would have advised their principal not to invest in this particular cash-out refinance loan due to the increased risk of default and exposure to Plaintiffs as the opportunity was not in the best interests of Plaintiffs. (TAC ¶21.) Plaintiffs allege they reasonably relied on the false representations, deception, and omissions of EWL and its agents, including but not limited to Suzie Peach and Debbi Suddarth. (TAC ¶21.)

Plaintiffs allege they proceeded to invest an additional $274,000.00, as part of a refinance loan arrangement presented by its agent, EWL. (TAC ¶21.) Plaintiffs allege Greg, Edith, and Hightechlending, agents for their principal Hedger, misrepresented the creditworthiness and income of Hedger, including the value of the real property security and the fact that Hedger missed payments for the existing secured loan. (TAC ¶21.)

Plaintiffs allege Suddarth, EWL, Greg, Edith, Hightechlending, and Hedger misrepresented the loan investment to Plaintiffs as an over-secured investment based on their purported careful and diligent review and research of the borrower and secured real property. (TAC ¶22.) Plaintiffs allege Suddarth, EWL, Greg, Edith, Hightechlending, and Hedger misrepresented that the loan to value ratio was forty percent of the appraised value of $420,000 for the Calabasas Property and that Hedger’s gross salary was $8,500 per month. (TAC ¶22.) Plaintiffs allege Greg, Edith, and Hightechlending owed Plaintiffs a duty of care because they clearly knew or should have known that Plaintiffs and Plaintiffs’ agents would rely on the inaccurate and misrepresented borrower information Greg, Edith, and Hightechlending negligently prepared in making and funding the loans. (TAC ¶22.) Plaintiffs allege Greg, Edith, and Hightechlending owed a legal duty of care to Plaintiffs. (TAC ¶22.)

Plaintiffs allege Suddarth, EWL, Greg, Edith, Hightechlending, and Hedger failed to disclose and advise Plaintiffs that the property was purchased for $75,000 in 2015, development of the Calabasas Property was not permitted, that the development of the vacant lot had no been initiated, that the permitting of the Calabasas Property could take two years or more, that the lots did not have a sewer system and relied on a septic system thereby materially impacting the value of the Calabasas Property, that Hedger had missed payments on the original loan, and that Hedger was not properly and thoroughly vetted, investigated, and evaluated for financial trustworthiness, viability, credibility, and suitability. (TAC ¶23.)

Plaintiffs allege EWL, as agents for Plaintiffs, hired two licensed California real estate appraisers, Gramlich and AAMC in 2017 and Varon and Next Day in 2019, who failed to carefully and diligently view and investigate the Calabasas Property and provide accurate reports indicating that Calabasas Property would utilize an above ground septic system and was not connected to a sewer system. (TAC ¶24.) Plaintiffs allege Gramlich, AAMC, Varon, and Next Day owed a duty of care to EWL and Plaintiffs. (TAC ¶24.) Plaintiffs allege the false and erroneous valuation of the Calabasas Property by Gramlich, AAMC, Varon, and Next Day materially impacted the appraised valuation of the Calabasas Property causing an erroneous valuation of $420,000 by Gramlich and AAMC and then $450,000 by Varon and Next Day when in fact the appraised value should have been $100,000 market value of the lots that provided security for the money loans by Plaintiffs. (TAC ¶24.) Plaintiffs allege on information and belief that Gramlich, AAMC, Varon, and Next Day failed to view the property in person, were not familiar with the specific location of the property, and utilized pictures from a different property. (TAC ¶24.) Plaintiffs allege but for the failure of Suddarth, EWL, Varon, Gramlich, Next Day, AAMC, Greg, Edith, and Hightechlending to utilize due care and diligence regarding the valuation of the Calabasas Property, an accurate and non-deceptive investment opportunity would have been presented to Plaintiffs. (TAC ¶24.) Plaintiffs allege but for Gramlich’s and Varon’s failure to perform a careful and diligent investigation and appraisal of the Calabasas Property, Plaintiffs would have been aware of the actual market value of the Calabasas Property. (TAC ¶24.) Plaintiffs allege they reasonably relied on the false information provided by Suddarth, EWL, Varon, Gramlich, Next Day, and AAMC regarding the valuation of the Calabasas Property. (TAC ¶24.)

Hightechlending demurs to the 2nd and 4th causes of action in the TAC on the basis the causes of action fail to state facts sufficient to constitute causes of action against Hightechlending, and the 4th cause of action on the basis it is uncertain. (Demurrer, pg. 3; C.C.P. §§430.10(e), (f).)

A cause of action for negligence requires the following elements: (1) defendant owed the plaintiff a legal duty; (2) breached the duty; and (3) the breach caused (4) damages. (Thomas v. Stenberg (2012) 206 Cal.App.4th 654, 662.) A complaint which lacks allegations of fact to show that a legal duty of care was owed is fatally defective. (See Jones v. Grewe (1987) 189 Cal.App.3d 950.) The existence of a legal duty of care is properly challenged by demurrer and is a question of law for the court. (Hegyes v. Unjian Enterprises, Inc. (1991) 234 Cal.App.3d 1103, 1111.)

Plaintiffs allege Suddarth, Next Day, Varon, AAMC, and Gramlich failed to exercise due care in the investigation, viewing, and opining regarding the market value of the Calabasas Property. (TAC ¶36.) Plaintiffs allege Next Day, Varon, AAMC, and Gramlich created and distributed an inaccurate and erroneous appraisal report. (TAC ¶36.) Plaintiffs allege it was reasonably foreseeable that the appraisal report would be reviewed and reasonably relied on by persons and/or entities, such as Plaintiffs, with interest in the Calabasas Property. (TAC ¶36.)

Plaintiffs allege Greg, Edith, and Hightechlending owed Plaintiffs and Plaintiff’s agents a legal duty of care because they clearly knew or should have known that Plaintiffs would rely on the inaccurate and misrepresented information that they presented regarding their principal, Hedger. (TAC ¶39.) Plaintiffs allege Greg, Edith, and Hightechlending knew with substantial certainty that Plaintiffs would rely to their detriment on the inaccurate information and documentation that Greg, Edith, and Hightechlending prepared and disseminated. (TAC ¶39.)

Plaintiffs allege EWL, Suddarth, Greg, Edith, and Hightechlending failed to exercise due care and diligence in the vetting and investigation of Hedger regarding his suitability as a borrower and risk as a borrower for investment purposes. (TAC ¶40.) Plaintiffs allege they reasonably relied on the information provided by EWL and Suddarth regarding the lending and investment opportunities. (TAC ¶40.)

Plaintiffs allege they were harmed by the negligence of EWL, Suddarth, Next Day, Varon, AAMC, and Gramlich. (TAC ¶41.) Plaintiffs allege the negligence of EWL, Suddarth, Next Day, Varon, AAMC, and Gramlich was a substantial factor in causing Plaintiffs’ harm. (TAC ¶42.)

Plaintiffs fail to allege the damages in the negligence cause of action were caused by Hightechlending’s conduct. (See TAC ¶¶41-42.)

Plaintiffs argue in their opposition that the Court should grant leave to amend on the basis that they attached a proposed fourth amended complaint that clarifies the negligence allegations against Hightechlending. (Demurrer, pgs. 3-4; Exh. 1.) It is an abuse of discretion for the court to deny leave to amend where there is any reasonable possibility that plaintiff can state a good cause of action. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; Bounds v. Superior Court (2014) 229 Cal.App.4th 468, 484 [stating court should grant leave to amend if in all probability plaintiff will cure defect].) Plaintiffs’ proposed fourth amended complaint demonstrates a reasonable probability that Plaintiffs can state a good cause of action.

Accordingly, Hightechlending’s demurrer to Plaintiffs’ 2nd cause of action is sustained with 20 days leave to amend.

“Negligent misrepresentation requires an assertion of fact, falsity of that assertion, and the tortfeasor’s lack of reasonable grounds for believing the assertion to be true. It also requires the tortfeasor’s intent to induce reliance, justifiable reliance by the person to whom the false assertion of fact was made, and damages to that person. An implied assertion of fact is ‘not enough’ to support liability.” (SI 59 LLC v. Variel Warner Ventures, LLC (2018) 29 Cal.App.5th 146, 154, internal citation omitted.)

The facts constituting the alleged fraud must be alleged factually and specifically as to every element of fraud, as the policy of “liberal construction” of the pleadings will not ordinarily be invoked. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) To properly allege fraud against a corporation, the plaintiff must plead the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann v. State Farm Mutual Automobile Insurance Co. (1991) 2 Cal.App.4th 153, 157.)

Plaintiffs allege Defendants represented to Plaintiff that facts were true concerning the lending transactions and/or appraisal value of the secured real property. (TAC ¶51.) Plaintiffs allege the representations of Defendants concerning the lending transactions and/or appraisal value of the secured real property were false. (TAC ¶52.) Plaintiffs allege Defendants knew or should have known the representations were false. (TAC ¶53.) Plaintiffs allege Defendants made the representations recklessly and without regard for the truth. (TAC ¶54.) Plaintiffs allege Defendants intended that Plaintiffs rely on the representations or should have known that Plaintiffs would have relied on the representations. (TAC ¶55.) Plaintiffs allege they reasonably relied on the representations of Defendants. (TAC ¶56.) Plaintiffs allege they were harmed by the misrepresentations of Defendants. (TAC ¶57.) Plaintiffs allege their reliance on the representations of Defendants was a substantial factor in causing Plaintiffs’ harm. (TAC ¶58.)

Plaintiffs fail to allege the names of the persons allegedly making the false representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written. (Tarmann, 2 Cal.App.4th at pg. 157.) Plaintiffs fail to allege their cause of action for negligent misrepresentation with the requisite particularity. (See Lazar, 12 Cal.4th at pg. 645.)

Accordingly, Hightechlending’s demurrer to Plaintiffs’ 4th cause of action is sustained with 20 days leave to amend.

Hightechlending’s demurrer to Plaintiffs’ TAC is sustained with 20 days leave to amend as to the 2nd and 4th causes of action.

Hon. Daniel M. Crowley

Judge of the Superior Court